India’s disputed ruling on pharmaceuticals and patents

Author: Arvind Subramanian, PIIE

On 1 April 2013, the Indian Supreme Court dismissed the attempt by Novartis, a Swiss pharmaceutical company, to obtain patent protection for a new version of the leukaemia drug Glivec.

The court made its decision on the grounds that the drug is not a new medicine, but an adjusted version of a known compound. The verdict follows the Indian Patent Office’s decision last month to grant an Indian drug manufacturer a compulsory licence to sell a generic version of a kidney cancer drug (Nexavar) patented by Bayer. These rulings raise five important points.

The first point relates to the perceived effectiveness of the rule of law in India. The traditional perception of India’s legal system is one of pathological dysfunction: one quip is that India may have rule but China has law. There is some truth to this caricature, which is why both rulings should be celebrated, regardless of whether one agrees with the results. In both cases, India provided due process for foreign companies and patent holders comparable to those in advanced democracies. At every instance, the deciding authority reviewed the arguments and facts, drew on evidence, relied upon domestic and foreign precedents, and explained its decisions. Even if the outcomes went against foreign companies, there can be little doubt about procedure. And in a country notorious for interminable delays in administrative and judicial procedures, patent cases have been decided in a timely fashion.

Second, taken individually, the patent cases do not indicate any categorical hostility to intellectual property (IP) protection or foreigners. The spirit imbuing all the recent patent cases in India has been to balance legitimate returns to inventors and investors against the concerns of consumers in a country where the affordability of drugs is of paramount political and social concern. Recent rulings and the underlying Indian law still tend to favour weaker, rather than stronger, protections for IP. But the intellectual property rights of foreigners have not been ignored. For example, the Indian Supreme Court decided to take on the Novartis case instead of waiting for the lower courts out of concern that delays could cut into the life of the patent. Also, when deciding on the fee that generic drug makers should pay Bayer for the compulsory licence, the Indian Patent Office opted for the highest end of the range recommended by the World Health Organization. In the subsequent review, India’s Intellectual Property Appellate board further increased this fee. Hostility to foreign companies would have translated into weaker protections than this.

These developments reflect India’s transition from being a net user of technology (favouring weaker IP protection) to being both a user and producer of technology (favouring stronger IP protection). The drug industry has also evolved from comprising only generic manufacturers to including a greater representation of research and development-based companies. The challenge for India will be to ensure that the law does not get out of step with the demands of a country that needs foreign investment and new technologies.

A third point relates to criticisms which suggest that India is a deviant for being the only country where Novartis’s claim has been rejected. Such views leave out the fact that even in the United States, Novartis’s application was first rejected by the patent office, and only succeeded on appeal. The Indian verdict, like that of the US Patent and Trademark Office, may well be more within the range of reasonable interpretations of what constitutes patentability than has been asserted by critics.

Fourth, the Novartis case was sui generis. The drug Glivec was a genuinely new and important discovery deserving of patent protection. Unfortunately for Novartis, the patent underlying Glivec was filed just before India changed its IP laws, meaning that India could technically claim that it had no obligation to protect Glivec. In retrospect, perhaps both Novartis and the Indian government should have attempted a negotiated settlement that recognised the unique situation relating to the Glivec patent rather than opting for litigation.

Finally, other developing countries, such as Brazil, Thailand and even China, could be emboldened by the Indian example and decide to dilute their own patent protection regimes. But the impact on advanced economy patent regimes could be even bigger. The US patent system has been criticised, sometimes vehemently, for its patent proliferation, its increasing tendency to hinder competition rather than promote innovation and for being captive to the interests of patent owners with deep pockets. At such a time, the Indian Supreme Court ruling could build momentum for a fundamental reassessment.

Ultimately, the ruling is appealing because it asked a question that was both naïve and salient. The judges wanted to know whether the Novartis patent is a ruse to prolong an existing monopoly beyond reasonable limits, a question that has wider resonance. Whether India is undervaluing patents or whether the rest of the world is overvaluing them might be one of the more intriguing questions raised by the Supreme Court ruling.

Arvind Subramanian is Senior Fellow at the Peterson Institute for International Economics and Senior Fellow at the Center for Global Development. The author would like to thank Jayashree Watal for helpful discussions.

A version of this article was first published here by the Peterson Institute for International Economics. 

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